Hey Rio Tinto: Don’t Be Evil

This is a tale of two companies with very divergent views of their role and responsibility in the world: Rio Tinto and Google.

Let's start by pointing out that some people view China as a wonderful place full of panda bears, exotic foods, mystical shrines and a fascinating, spiritual people steeped in Buddhist culture and tradition. They tend to be the same people who still believe in the Easter Bunny and Santa Claus. These people believe in something called the Chinese Miracle, in which every Chinese is living the dream – skyrocketing from poverty to middle class in their booming economy. They most certainly are people who know China mostly from books and television, or perhaps from having been to the Olympics or from taking a well-guided tour to the Great Wall.

China is actually a pretty crappy, miserable place. 90% of the world's executions take place there; the overwhelming majority of Chinese citizens work long hours for dismal pay and live in wretched poverty; there is nothing remotely like freedom – of the press, of religion, or just about anything else; the environment is a toxic mess; and the military routinely goes after its own citizens. No one in China trusts anyone else for very good reason - anything not tightly nailed down disappears immediately. There are few fates in life worse than having been born Chinese and not part of the small power circle that controls the Chinese Communist Party. If you don't believe that, you have only to ask why it is nigh unto impossible for the average Chinese to get a visa to leave the country. You see, we in the western world don't worry too much about whether our folks will come back after a visit to some other country. The Chinese know that once they let someone go, the chances of them returning are very slim. So no one gets to leave unless the Chinese government has their family or some serious assets to hold as collateral to assure their return.

The highest circle of Chinese government is not a friend of the United States, Australia, or anywhere else. They are not even friends of the Chinese people. They want power – period – and have no compunction about using any means to get it, and they want that power because it leads to wealth. Whatever China has in mind with its currency manipulations, political and military posturing, and deliberate pressure to keep wages down in order to attract the world's manufacturing base, it is not for the benefit of the United Sates or Australia; and it is not so China can become a full-fledged, contributing member of the 'community of nations' making the world a better place.

A fellow by the name of Stern Hu– the ranking Chinese executive for British and Australian mining giant Rio Tinto – was arrested a while back and charged with accepting bribes and stealing state secrets. The Chinese should have made him an honorary member of the Party, if the accusations are true. Bribery and stealing state secrets seems to be as natural a part of the Chinese power culture as breathing. If those acts are, in fact, crimes in China, just about every Chinese with enough money to own a car should be in jail. According to the Washington Times last week, "The cyber-attack on Google and other U.S. companies was part of a suspected Chinese government operation launched last year that used human intelligence techniques and high-technology to steal corporate secrets, according to U.S. government and private-sector cybersecurity specialists." For the Chinese to accuse a guy from Rio Tinto of stealing information about iron ore is not just thin – it's ludicrous.

But the story is actually quite a bit deeper than this. It seems the accusations came immediately after Rio Tinto rejected a bid from a Chinese state owned outfit to double their ownership of Rio Tinto's iron ore operations from 9% to 18%. By all appearances, Rio Tinto got the message - you do business in China by Chinese rules or you get out – so they threw Hu under the bus, and jumped into bed with China – which buys the vast majority of Rio Tinto's iron ore.

The "trial", of course, was held in secret. Hu was found guilty and sentenced to ten years in China's Qingpu gulag, and Rio Tinto and China are off on further joint ventures, putting a lot of money into each other's pockets. A fellow by the name of Sam Walsh, who runs Rio Tinto's iron ore business says, "We have been informed of the clear evidence presented in court that showed beyond doubt that the four convicted employees had accepted bribes," while acknowledging that the trial was held in secret and the evidence cannot be disclosed.

Now maybe Sam was out sick that day in civics class, but the fact is that legitimate countries with legitimate legal systems hold their trials in the light of day. The accused gets to face his accuser, and the evidence is laid out in public. The only exceptions are cases of the most clandestine national security and there is nothing in the iron ore digging and steel making business that rises to that standard. If the evidence isn't open to the public then it doesn't exist. And you, Sam, have what is known as a conflict of interest. You and China have your hands deep into each other's pockets … roughly translated to mean that your word that the evidence exists ain't good enough. Maybe Hu did it, and maybe he didn't. It takes a lot more than the word of a Chinese judge or Sam Walsh to establish it as fact. It takes the word of someone with ethics, which rules those two out.

Compare this story with Google. Their tale is well known. The Chinese government has been in a full court press to control Google and to control the searches that can be done on their massive computer engines. Google has gone along with the Chinese for quite a while, trying to find ways to accommodate the Chinese censors without compromising their product. They finally said enough is enough. There is no market big enough, no carrot juicy enough for them to violate their founding principle: Don't Be Evil. They know full well that China is, in fact, evil, and they can only go so far with them before they become evil themselves; so they packed up their gear and moved beyond Chinese control to Hong Kong. Google knows the Chinese government is slashing and burning Google content in China, (It is telling that the primary issue is the ability of Google's Chinese users to get information about human rights advocates, which is information the central party will not allow to be freely available under any circumstances. Do you still believe in the wonders of the Chinese miracle?) but Google decided that if anyone is going to lie to and deny freedoms of the Chinese populace, it will have to be someone other than Google.

It seems Google was not created by some pie-in-the sky warm and fuzzy idealist who falls for the silly notion of the Chinese miracle. Nor was it founded by folks like Sam up at Rio Tinto who are willing to put money ahead of the interests of humanity or their own country or any other principle. No, Google's Sergey Brin grew up in Soviet controlled Russia, and he understands China with great clarity. He is having none of it because he sees evil as it is – while Rio Tinto can't seem to see beyond dollar signs.

Rio Tinto should be ashamed of itself, and all of Australia should be outraged at Prime Minister Kevin Rudd's assertion that the Rio Tinto debacle was "separate from Australia's productive relationship with China." What productive relationship? The power hungry leadership of China is stealing your most precious national, natural resources and Rio Tinto is getting a commission for helping them.

Barack Obama is no better as he leads the US in tiptoeing around Chinese leadership. The fact is, however, that 'evil' is a pretty good word to describe China. There is also an old adage that you can tell a lot about a man by knowing who his friends are. This case tells quite a bit about Google – and about Rio Tinto and the leadership of both companies. When all of the intellectual dust and complicated rationalizations fade away, Google sees life's bigger picture in pretty straightforward terms. Too bad Rio Tinto and so many others can't.

Comments

Google made very little money in China (most sales in China were for ads on google.com, not on google.cn, and they can go on), so the PR benefits offset the revenue loss.
Rio Tinto’s case is… a criminal case, and as you pointed out we nearly know nothing about it.
I live in China and people here just think differently. You view them with your American values, so of course it looks evil. Same thing when the Chinese look at certain aspects of your society.

Yep I guess I am intellectually limited because I actually believe that “All men are endowed by their Creator with certain inalienable rights, and among these are life, liberty and the pursuit of happiness” and the Chinese clearly do not.

Bill, You crack me up (for those in China, that means “makes me laugh”). I must say that your blog post are always full of truths and common-sense, and maybe a little sarcasm. The problem is common-sense is not that common these days. So, many of your readers do not get IT. They have been fed so much BS by “well-educated, well-respected groups” that all many of your readers can do is regurgitate what has been said by others rather than THINKING for themselves. Maybe your readers should take a look at the following on-line book by Samuel Smiles titled “Self-Help”. I think you have many of Samuel’s truisms in your posts. http://www.gutenberg.org/etext/935

Bill,
I am not implying that you are intellectually limited. I read your posts about manufacturing with interest. But I do not agree with this post. For example, here are the views of the Chinese on:
-1- The right to life: the death penalty is useful to defend people against “really bad guys” – for example the executives of Sanlu who poisoned millions of children with tainted milk. (In proportion of the population it is both negligible and not very different from the US.)
-2- The right to liberty: believe it or not, most Chinese do feel free. They don’t care about Google’s departure. Rules are not enforced the same way as in the US: thousands of Chinese use VPN services to avoid the “Great Firewall”. Rules just don’t mean the same thing.
-3- The right to pursuit of happiness: the Chinese rank among the happiest people in international rankings. They are very focused on economic opportunities, which (I hope you will not deny) have greatly increased over the last 20 years.
To sum up, I believe China’s actions ARE causing huge problems… But no solution will be found as long as Western countries do not seek to understand its strategies and its motives.

I have subscribed to EE and followed your thoughts for a while (>4 years). Your wisdom on Lean. Your rants (often beyond my grasp). And those ideas you’ve been given by the faeries – which I do understand.
On this one: Well Said and Written. Bravo. Wild Applause from Gallery.

I’m guessing most Chinese prefer living in todays China over Mao’s China. China won’t be able to escape further liberalization once their economy becomes more dependent on skilled human capital rather then low cost labor.

For all their ‘don’t be evil’-shtick Google was perfectly willing to go along with the Chinese. (And equally happy to earn some money through AdWords on millions of dodgy websites.)

Bill,
Right, they think differently and we should try to understand their point of view. Just one example: the more the US insists on revaluing the RMB, the less likely China will do it. Beijing would suffer a major loss of face (all the Chinese would interpret it as a sign of weakness and submission to the US).

Nice polemic, but I have to take issue with this statement: “It seems Google was not created by some pie-in-the sky warm and fuzzy idealist who falls for the silly notion of the Chinese miracle.”

You make it sound like it is the liberal bleeding hearts that are pushing the idea of “Chinese miracle.” Nothing could be further from the truth. The ones pushing the Chinese miracle are the neo-liberal, Chicago-school globalism advocates. They push the miracle relentlessly to gloss over the fact that we exploit the Chinese workers for the benefit of the few at the top of the power (national and corporate) structure.

Actually Dean I believe China gets more support than it deserves from both ends of the spectrum. You are absolutely correct about the Chicago school globalization advocates; but the liberal left gives China a free pass on environmental issues, as well as on just about everything else. I think the left’s anti-capitalism bias renders them incapable of taking serious issue with the Chinese.

“No one in China trusts anyone else for very good reason – anything not tightly nailed down disappears immediately.” It is very sad to imply that all Chinese are thieves and not trusting. I leave it up to you to back your comment up with facts.

“The Chinese know that once they let someone go, the chances of them returning are very slim.” As compared to other people coming to Europe at least, the Chinese are eager to get home to China since that is where the action is at.

“There are few fates in life worse than having been born Chinese and not part of the small power circle that controls the Chinese Communist Party.” There are an immense amount of fates that are worse I am quite sure.

I think it is chilidh and below the standards of this blog to go after an entire country of 1,3 billion people in this way. You are probably right in the stuff below regarding Rio Tinto, but your overall generalizations does nothing to bolster your views.

I spent years wanting to believe as you do in the inherent goodness of all people and wanting to believe in the Chinese people. Eventually I had to accept reality. I did not write this as some Jingoist American with a racial bias. I wrote it as a veteran of dozens of visits to China, and from the exerience of having just about everything not nailed down stolen from me there – from cell phones and money to my passport and luggage.

I wanted to beleive in the young Chinese managers who I invited into my home, who played with my grandchildren and ate with my family – ony to learn that every one of them was eventually fired for having taken bribes and stolen from the companies they worked for.

The wait for exit visas from China is measured in years, and most never get them. That is simply the way it is there.

I argued from your point of view when I heard veteran American and European executives say that the only way to succeed in China is to have a ’round eyed’ person running your plant. It initially struck me as a terribly racist attitude. In the end, however, I was proven to be a fool, and a terribly naive one at that. I wish you were right – you sound like me up until a year or so ago.

I guess it is understandable then, and I applaud you for telling me your initial views. Part of my reaction was due to the fact that I am moving there for a 2-year period as part of an expansion of the company. I guess when that is done I will know for myself.

Good luck with the stint in China. I am sure it will be an amazing experience – no matter how it turns out. I will be interested in how it affects your view of China.

In fairness to the Chinese people, the fact that there are 1.3 billion folks makes it the most competitive place on earth. The old adage, ‘Nice guys finish last’ is very much in play there. If someone is not looking out for their own interests in China, no on else is going to look out for them. The culture seems to be to grab yours while you can and whenever you can because someone else will grab it if you don’t.

China is also a place with few second chances. A prime example is the educational system. A kid who doesn’t ace the exams for 13 year olds is done – no second crack at getting into college. That kid will be a manual laborer for life. The same is true throughout Chinese life. When your opportunity arises, you had better take it by whatever means necessary because it will not be there again.

You and I also get a skewed view of China largely because they have a skewed view of us. They seem to think that every westerner lives the life of Bill Gates, and will assume that you have unlimited wealth. They will see taking your cell phone or your wallet as no greater misdeed than you or I inadvertantly walking out of the bank with the pen the teller loaned us to sign a check – hardly a cause to lose sleep with pangs of conscience.

I love EE and think you Kevin and Bill are frequently on the mark. But not this time.

There is a fundamental difference between Google and Rio Tinto. Google can move their Chinese operations to another Chinese-speaking locale such as Taiwan, Singapore or even California. They might sacrifice a bit of local ad revenue, but I’m sure there are plenty of multinationals that will continue to advertise for the Chinese-language Google.

For obvious reasons, Rio Tinto can’t do remote mining.

Moreover, I think the Rio Tinto executives were in a no-win situation. They can continue to operate under these conditions in China. Or they can compromise their fiduciary responsibility to the shareholders by terminating their operations in China.

As a point of clarification, Rio Tinto doesn’t mine iron ore in China. They mine it elsewhere – primarily Australia – and sell it to China. The crux of the Rio Tinto-China conflict was how much China would have to pay for iron ore. In that regard, they and Google are in the same boat. Google sells information and Rio Tinto sells iron ore. China tried to strongarm Rio Tinto over price and availability of iron ore; and they tried to strongarm Google over the content available to users who used Google as their search engine. In the case of Rio Tinto China won; in the case of Google they lost.

The matter of Google’s business interests in China is a lot greater than selling a few local ads. It is whether China will allow Google into China. Few people understand the degree to which China censors the Internet. Google’s search engine is not available in China – as of yesterday anyway. If you log onto the Internet in China and look for Google.com.cn you will get a message that says the site is not available. With as many as 400 million potential users not availaing themselves of Google, the cost of telling China to go pound salt is a lot more than a few local ads. How much people are willing to pay for ads on Google without 400 million users is a lot less than had they knuckled under to the Chinese.

The “fidiciary responsibility” Google has to its shareholders is no greater and no less than Rio Tinto’s. The difference is what the two companies are willing to do ethically in pursuit of fulfilling that fiduciary responsibility.

Visiting this site is usually an education- this time moving from manufacturing through to ethics. This post would be a great resource for high school courses in globalization and what corporate responsibility means. I hope educators can pick up on it. There’s lots for students to think about – before they go and buy an iPad.